How to Calculate Current Liabilities?

What are the Current Liabilities?

Current liabilities are an enterprise’s obligations or debts that are due within a year or within the normal functioning cycle. Moreover, current liabilities are settled by the use of a current asset, either by creating a new current liability or cash. Current liabilities appear on an enterprise’s balance sheet and incorporate accounts payable, accrued liabilities, short-term debt and other similar debts.

The average amount of current liabilities is a vital component of various measures of the short term liquidity of a trading concern, comprising of :

Current Ratio It is current assets divided by current liabilities
Quick Ratio It is computed as current assets minus inventory which is divided by current liabilities
Cash Ratio These are the cash and equivalent of cash which is divided by current liabilities

The current liabilities formula:

Current Liabilities = (Notes Payable) + (Accounts Payable) + (Short-Term Loans) + (Accrued Expenses) + (Unearned Revenue) + (Current Portion of Long-Term Debts) + (Other Short-Term Debts)

Calculation

If company XYZ has current liabilities mentioned below

Account payable – ₹35,000

Accumulated wages – ₹85,000

  • Accumulated expenses- ₹65,000

Rents- ₹ 1,50,000

Loans- ₹45,000

  • Other debts- ₹85,000

To calculate the total current liability, add all the accounts amount (A2-A7). This calculation will give the total current liabilities amount for that particular year. Likewise, the calculation can be done for multiple years and see the difference.

The above mentioned is the concept, that is elucidated in detail about ‘How to calculate Current Liabilities?’ for the Commerce students. To know more, stay tuned to BYJU’S.

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